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Commercial Property vs Residential Property Investment in India (Hindi) - YouTube
Channel: Asset Yogi
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To watch the latest finance video first
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Namaskar, my name is Mukul and welcome to the Asset Yogi
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where we unlock the knowledge of real estate and finance
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This is the 4th video of the commercial real estate investing
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In the first 3 videos, I covered the basics of commercial real estate
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In 2nd, I covered how you should invest in a shop or office space
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In 3rd, we discussed the valuation and returns of commercial property
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and in this video, we are going to discuss about the comparision
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between commercial property and residential property
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So stay tuned with this video till the end. As always
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Let's switch to the blackboard
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So let's compare residential and commercial properties on different parameters
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The first parameter is rental returns
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Rental returns will be higher in commercial investments
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In residential, you get 2-4% of rental returns
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That means annual returns of 2-4% of property value
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In commercial, you get easy 6-12% returns
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So if we understand this through an example, let's say you have Rs 1 Cr to invest
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and you want to compare the returns in commercial vs residential
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So if you invest in residential, if we take an average of 3%
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you'll get Rs 3 lakhs per year from Rs 1 Cr
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which means Rs 25,000 per month
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But if you invest Rs 1 Cr in commercial
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and if we calculate according to 6%, you'll get Rs 6 lakhs per annum
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Rs 6 lakhs means Rs 50,000 per month
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And if it goes 12%, it can go up to Rs 1 lakh per month
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So this is the range in commercial and the rental returns are always better
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But better returns means more risk
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So let's compare the risk
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In residential, the vacancy risk is always less
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Vacancy risk means the property will not be vacant for a long time
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Hardly 5-10% vacancy risk is there
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because people always need place to live
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That's why vacancy risk is always less in residential
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But in commercial, vacancy risk is high
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Let's say your property is on the outskirts or at an underdeveloped place
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so that may be a dead investment for years
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So that is a risk
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Then there is an important point of maintenance and management
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It is easier to manage residential
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You just need to give it on rent to the tenant and he keeps paying the maintenance
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so there is not much scope to manage
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But there is a complexity in the commercial
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Commercial properties always need a backup
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and if the work of the corporates stopped for even a minute, it's a big loss
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That's why retail or office space will demand high
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their management should be up to date
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So for this, expertise is required
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Many times, you need to hire property management companies for the commercial properties
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so its cost is also high
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Thats why if you don't have knowledge of commercial properties,
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then initially start with a small retail shop
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a 200-300 sq. ft. office and you can start from there
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Then there is a difference in the lease period
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The lease period is always for a shorter time period in residential
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Generally, an 11-month standard lease agreement is signed
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But it can be more and people go maximum up to 3 years
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But in commercial, leases are signed for 5-15 years
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There is a 3+3+3 standard format, i.e for 9 years
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And the other one is 5+5+5 = 15 years lease
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So the landlord and tenant can renegotiate the rent every 3 years
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the tenant can leave that place after 3 years and if the landlord wants, he can terminate the lease
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So after every 3 years, it is renegotiated
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So there is a scope of negotiation 2 times
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Similarly, it is there in every 5 years in 5+5+5
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After that, there is an important point of security deposit
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In the case of residential, 2-4 months of rent is submitted as a security deposit
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But because there is more risk in commercial that's why
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minimum 1 year rent is submitted as a security deposit
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Now let's see the investment amount comparision
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In the case of residential, the amount is lower
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and higher in case of the commercial
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In some cases, the property value even increases 5 times
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that means the rate...
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If I take an example, let's say the rate of residential property in an area is Rs 5000 per sq. ft.
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for buying it
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Then the rate of commercial can be 10,000-15,000 per sq. ft. easily
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and in some cases where the footfall is high
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It can be even 5 times
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That's why you need more financial capacity to invest in a commercial property
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If you can buy a Rs 50 lakhs house in any area,
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then the commercial property in that same area of that same size will be around Rs 1-1.5 Cr
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That's why financial capacity should be more in this case
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2nd is how many types of residentials are there
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You can invest in apartments, villas which are also called independent houses
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or you can invest in builder floor
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There is another option of plot in this but I am not covering it in this video
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I made a separate video on the plot
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Here we are discussing about the build-up properties
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That's why I didn't cover plot in this segment
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Similarly, you can invest in retail space in commercial, in office space
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or in hospitality like in hotels, banquet halls, party halls
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you can invest in these also but generally
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the individuals invest in retail or office store
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and the one who is operating in the hospitality industry generally invest in it
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But service apartments is something that individuals can also target
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Service apartments are a new segment in the hospitality industry so the individuals target it
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Let's see some more examples of the parameters
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Tax benefits
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Tax benefits are there in residential but not in commercial as an individual
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Then the loan is easily available in case of residential
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Generally, home loan is the lowest interest rate loan that you can get
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In commercial, you may get a loan but only if the property is a rented out unit
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otherwise, if it is an empty space, it is not easily available
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and the interest rates are high in case of commercial
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Then there is a risk of liquidity
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In the case of residential, it is easy to sell the property
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But in the case of commercial, selling property is a bit difficult task
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So if you want to invest for short term
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let's say for 2-3 years. Then residential is better for you
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But in commercial, take a minimum horizon of 5-10 years
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Otherwise, you'll not get returns properly and
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It is difficult to sell it. Let's say you need an amount urgently
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then you won't be able to sell it instantly
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So there is a liquidity risk with the commercial properties
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Then there is the economic impact
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In residential, the economic impact is very less
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At max, the rent will decrease but the property will get on rent
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Because people always need a place to live
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But in commercial, the impact is very much
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If there is an economic slowdown and the markets went down,
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there is no business with the companies
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So along with the rent, there is a vacancy risk
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Vacancies go high and rent decreases
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So there is a direct link of the economy
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and the impact is more in commercial
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Then there are some key factors in residential and commercial
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In residential, invest where the market, schools, hospitals are near
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and the connectivity is good
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So at such places, houses are rented out more
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After that, the key factors in commercial are connectivity, distance from the airport
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Metro is near or not, how wide are the roads and business districts
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Means invest in the area which is either CBD (Central Business District) area
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or at some places, there is Secondary Business Districts
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Let's take an example of the CBD area of Gurgaon
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So it is the cyber city
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So if your office space is in cybercity or it's around, then renting is easy
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or let's take the secondary business district of Sona road in Gurgaon
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If you'll invest like these places, your property will be on rent quickly
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Residential is good for mainly first-time buyers
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If you're investing for the first time in real estate
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then you should start with residential
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It's always better that you'll get to know about all the risks and returns
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and after that, you can go to commercial
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Once you took the experience from residential
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because the know-how and expertise required is high in commercial that's why
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it would be better to enter in commercial as an experienced investor
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And in that also, I would suggest starting with a small shop or office
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Let's say of not more than 200-500 sq. ft.
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So broadly, these are all the important points of differences between residential and commercial
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So that's it in this video
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If you have any questions or suggestions related to this video
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or if you want to suggest any future topic for the videos
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then comment down below
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So we'll meet in the next video
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Till then keep learning, keep earning, and stay happy.
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